The Debate Over a US Sovereign Wealth Fund: Viability and Risks

Introduction: The Sovereign Wealth Fund Buzz

Sovereign wealth funds (SWFs)—government-owned investment funds—have recently moved from the periphery of finance to the center of American political discourse. With both the Biden administration and the Trump campaign floating the concept of a national US sovereign wealth fund, the idea has gained unexpected traction. However, this proposal has been met with significant skepticism from economists and political scientists, prompting a need for "due diligence" to determine if such a fund is a practical solution or merely an economic fantasy.

What is a Sovereign Wealth Fund?

According to Tyler Cowen, an economics professor at George Mason University, a sovereign wealth fund is created when a government invests "excess money" to earn a "highly positive rate of return," thereby increasing national wealth and potentially lowering taxes for citizens. While often associated with modern oil-rich nations, these funds have historical roots. In the United States, states have operated their own funds for over a century. For instance, the "Texas Permanent School Fund," established in 1854, manages revenue from state lands—specifically "oil and natural gas royalties"—to support public education.

The Fiscal Reality Check

The primary argument against a national US fund is structural. Tyler Cowen notes that a successful SWF requires a "budget surplus," a condition the United States has not met since 2001. Instead of accumulating wealth, the US has been "racking up a stupendous amount of debt." Cowen argues that because the US is neither small nor currently well-governed in a way that produces surpluses, the idea of a national fund is "absurd."

The Case for an Alternative Approach

James Brawley, a senior fellow at the Competitive Enterprise Institute, offers a contrarian view, arguing that a US sovereign wealth fund is "underrated." Brawley suggests that the US does not necessarily need a current budget surplus to create a fund. He proposes alternative funding mechanisms, such as:

• Channeling foreign investment dollars.
• Issuing special bonds.
• Managing federal assets and land more "prudently" to generate trillions in revenue.

Brawley contends that an independent fund would be more "efficient and cost-effective" than the current legislative process, which he describes as prone to "special interests pandering for dollars."

The Political Hurdle: Interference and Reality

Even proponents and skeptics agree on one major risk: political interference. Tyler Cowen emphasizes that "politics is politics," and it is nearly impossible to prevent political agendas from hijacking investment strategies. He points to the Texas Permanent School Fund as a cautionary tale; while intended for education, the state legislature often redirects significant portions of the revenue to other "branches of governance" based on evolving priorities.

Furthermore, there is the danger of "dodgy" investments, where political leaders might force the fund to prioritize domestic assets for political gain rather than economic health. While Brawley suggests the fund could be insulated through a structure similar to the Federal Reserve, the political reality remains daunting. Establishing such a fund would require an "act of Congress," a feat Brawley admits is unlikely given the current lack of political will.

Conclusion

While the prospect of a US sovereign wealth fund captures the imagination as a way to bypass the "torturous" nature of Congress and achieve long-term growth, the consensus among many experts remains skeptical. As Cowen concludes, the United States should focus on building upon its existing strengths rather than pretending to operate like a small, resource-rich nation with a surplus. For now, the idea of a national sovereign wealth fund remains more of a theoretical dream than a viable policy path.